|AIG REPORTS SECOND QUARTER 2011 NET INCOME OF $1.8 BILLION|
NEW YORK, Aug 04, 2011 -- American International Group, Inc. (NYSE: AIG) today reported net income attributable to AIG of $1.8 billion and after-tax operating income of $1.3 billion for the quarter ended June 30, 2011, compared with a net loss of $2.7 billion and after-tax operating income of $793 million for the second quarter of 2010. The second quarter 2010 loss was primarily due to a $3.3 billion non-cash goodwill impairment charge included in discontinued operations. The diluted earnings per share were $1.00 for the second quarter of 2011, representing a return on equity of 8.3 percent, compared with a loss per share of $19.57 for the second quarter of 2010. The 2011 second quarter after-tax operating income per share was $0.69, a 6.3 percent return on equity, compared with after-tax operating income per share of $1.18 for the second quarter last year. Earnings per share for the current period reflect the 1.655 billion shares issued to the United States Treasury Department on January 14, 2011.
"Our results for the second quarter demonstrate the hard work from employees across all of our business units and our unrelenting focus on performance," said Robert H. Benmosche, AIG President and Chief Executive Officer. "We also achieved a significant recapitalization milestone during the quarter with an $8.7 billion common stock offering, consisting of the issuance and sale of 100 million shares by AIG and the sale of 200 million shares at a profit by the U.S. Treasury. Our continued improving operating results should provide a catalyst for the U.S. Treasury to sell its shares at a profit for the taxpayers. Now that we have fully repaid our debt to the Federal Reserve, we are on the right path to demonstrate AIG's long-term value as an investment-grade company independent of government support."
(1) 2010 computation based on net income (loss) available to common shareholders after attribution of net income (loss) to Series C preferred shareholder.No attribution made in 2011 as a result of the completion of the Recapitalization.
(2) Primarily AIA in 2010.
(3) Tax valuation allowance attributable to continuing operations.
(4) Second quarter 2011 discontinued operations include Nan Shan. Second quarter 2010 discontinued operations was comprised of AIG Star Life Insurance Co., Ltd., AIG Edison Life Insurance Company, American Life Insurance Company, American General Finance, Inc. and Nan Shan.
Chartis reported second quarter operating income before net realized capital gains (losses) of $789 million, compared to operating income of $955 million in the second quarter of 2010. Second quarter 2011 results included $539 million of catastrophe losses, including $348 million related to tornadoes in the Midwest, Southeastern and Northeastern regions of the United States; $84 million for U.S. floods and other storms; and $54 million related to the New Zealand earthquake in June, compared to $300 million in catastrophe losses in the second quarter of 2010. Chartis' 2011 six-month operating income was adversely affected by the extraordinary level of catastrophe losses in 2011, including the $1.3 billion Tohoku earthquake and tsunami.
The second quarter 2011 combined ratio was 104.0 compared to 102.0 in the second quarter of 2010. The current accident year combined ratio, excluding catastrophes, was 97.7, compared to 96.9 in the prior year period. The second quarter 2011 results reflect no significant prior year loss reserve development and no changes in the loss estimate related to the earthquake that occurred in Japan in March.
Second quarter 2011 net premiums increased 2.4 percent and were essentially flat compared to last year, excluding Fuji and the impact of foreign exchange. When those items are included, worldwide net premiums increased 17.6 percent compared to the same period last year. U.S. pricing generally improved during the quarter, primarily driven by commercial property and workers' compensation, while pricing on other lines was generally stable. Chartis' retention continued to show positive trends.
Chartis has made significant progress reorganizing its businesses to a more truly global commercial and consumer business. Chartis currently anticipates that it will complete its organization and operating design and related segment reporting changes in the third quarter of 2011.
SUNAMERICA FINANCIAL GROUP
SunAmerica reported operating income of $743 million in the second quarter of 2011 compared to $858 million in the second quarter of 2010. Second quarter 2011 results were affected by reduced net investment income, driven by a $176 million lower fair market valuation of SunAmerica's holding of ML II compared with income of $120 million in the second quarter of 2010. Excluding ML II, net investment income increased due to higher partnership income and the redeployment of $8.4 billion of cash and short-term investments to higher yielding fixed income securities, including certain ML II securities.
Assets under management of $254.9 billion at the end of the second quarter increased 9 percent compared to $233.8 billion in the second quarter of 2010. Unrealized appreciation of investment securities totaled $4.6 billion compared to $4.1 billion at March 31, 2011.
Premiums, deposits, and other considerations totaled $6.1 billion, a 23.7 percent increase compared to $5.0 billion last year, as both fixed annuities and variable annuity deposits showed significant improvements. Fixed annuity deposits increased 58 percent over the prior year as certain bank distributors negotiated a lower commission in exchange for a higher crediting rate which made SunAmerica offerings more attractive to policyholders. Variable annuity deposits were $832 million in the quarter, a 68 percent increase over the second quarter of 2010 due to competitive product enhancements, reinstatements during the last year at a number of key broker-dealers, increased wholesaler productivity, and improvements in the equity markets. Group retirement products and retail mutual fund deposits also increased 6 percent and 29 percent, respectively. Retail life insurance sales grew 16 percent over the second quarter of last year as product enhancements and efforts to re-engage independent distribution and improve productivity of the career agency force continue to produce results.
Financial Services reported a second quarter operating loss before net realized capital gains (losses) of $146 million, compared with operating income of $25 million in the second quarter of 2010.
ILFC reported second quarter operating income of $86 million, compared to operating income of $182 million in the second quarter of 2010. During the second quarter of 2011, ILFC recorded rental revenues of $1.1 billion and depreciation expense of $459 million compared to rental revenues of $1.2 billion and depreciation expense of $480 million in the second quarter of 2010, due to a reduction in the size of ILFC's aircraft fleet under operating leases as a result of the sales of aircraft during 2010 and 2011 and the impact of lower lease rates on used aircraft. ILFC recorded a $61 million loss on the extinguishment of debt and $42 million of impairment charges, fair value adjustments and lease-related charges in the current quarter. At June 30, 2011, ILFC had 933 aircraft in its fleet, compared to 946 at June 30, 2010.
Capital Markets, whose active wind-down of the remaining AIGFP derivatives portfolio was completed as of June 30, 2011, reported a second quarter operating loss of $160 million, compared to an operating loss of $145 million in the second quarter of 2010. The results were primarily due to unrealized market valuation losses related to the super senior credit default swap portfolio, partially offset by improvement related to the net effect of changes in credit spreads on the valuation of Capital Markets derivative assets and liabilities as well as lower operating expenses.
Active wind-down of AIGFP derivatives portfolios:
PARENT & OTHER
AIG's Parent and Other operations reported second quarter operating income of $344 million, compared to an operating loss of $131 million in the second quarter of 2010. Holdings of AIA ordinary shares produced income of $1.5 billion during the quarter, as this position is recorded at fair value based on the June 30, 2011 closing price on the Hong Kong Stock Exchange. Unallocated corporate expenses totaled $261 million in the quarter compared to $761 million in the second quarter of 2010, which included a significant litigation reserve. AIA's results were consolidated with those of AIG in the second quarter of 2010.
Mortgage Guaranty reported operating income of $13 million for the second quarter of 2011, compared to operating income of $226 million in the second quarter of 2010. The results for the 2010 quarter reflect $232 million of favorable loss reserve development. For the current quarter, newly reported delinquent loans continued to decline, although overturns of previous rescissions rose.
AIG's Direct Investment book had second quarter operating income of $93 million before net realized capital gains (losses) compared to operating income of $307 million in the second quarter of 2010, with the lower income primarily driven by substantially wider credit spreads this quarter.
The fair value of AIG's interest in Maiden Lane III decreased $667 million during the second quarter, compared with an increase of $358 million in the second quarter of 2010, due to wider credit spreads on U.S. housing-related assets in the current quarter. Estimates of future cash flows supporting the recovery of AIG's investment and share of the residual interests remained steady.
AIG will host a conference call tomorrow, August 5, 2011, at 8:00 a.m. ET to review these results. The call is open to the public and can be accessed via a live listen-only webcast at http://www.aig.com. A replay will be available after the call at the same location.
Additional supplementary financial data is available in the Investor Information section at http://www.aig.com.
It should be noted that the conference call (including the conference call presentation material), this earnings release and the financial supplement may include projections and statements which may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These projections and statements are not historical facts but instead represent only AIG's belief regarding future events, many of which, by their nature, are inherently uncertain and outside AIG's control. These projections and statements may address, among other things: the timing of the disposition of the ownership position of the United States Department of the Treasury ("the Treasury Department") in AIG; the timing and method of repayment of the preferred interests in AIA Aurora LLC held by the Treasury Department; AIG's exposures to subprime mortgages, monoline insurers and the residential and commercial real estate markets, state and municipal bond issuers, and sovereign bond issuers; AIG's strategy for risk management; AIG's ability to retain and motivate its employees; AIG's generation of deployable capital; AIG's return on equity and earnings per share long-term aspirational goals; AIG's strategy to grow net investment income, efficiently manage capital and reduce expenses; AIG's strategy for customer retention, growth, product development, market position, financial results and reserves; and the revenues and combined ratios of AIG's subsidiaries. It is possible that AIG's actual results and financial condition will differ, possibly materially, from the results and financial condition indicated in these projections and statements. Factors that could cause AIG's actual results to differ, possibly materially, from those in the specific projections and statements include: actions by credit rating agencies; changes in market conditions; the occurrence of catastrophic events; significant legal proceedings; concentrations in AIG's investment portfolios, including its municipal bond portfolio; judgments concerning casualty insurance underwriting and reserves; judgments concerning the recognition of deferred tax assets; judgments concerning the recoverability of ILFC's fleet of aircraft; and such other factors as discussed throughout Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations of AIG's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, in Part II, Item 1A. Risk Factors of AIG's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, throughout Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and in Part I, Item 1A. Risk Factors in AIG's Annual Report on Form 10-K for the year ended December 31, 2010. AIG is not under any obligation (and expressly disclaims any obligation) to update or alter any projection or other statement, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise.
American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo.
Comment on Regulation G
This press release, including the financial highlights, includes certain non-GAAP financial measures. The reconciliations of such measures to the most comparable GAAP measures in accordance with Regulation G are included within the relevant tables or in the second quarter 2011 Financial Supplement available in the Investor Information section of AIG's website, http://www.aig.com.
Throughout this press release, AIG presents its operations in the way it believes will be most meaningful and useful, as well as most transparent, to the investing public and others who use AIG's financial information in evaluating the performance of AIG. That presentation includes the use of certain non-GAAP measures. In addition to the GAAP presentations, in some cases, revenues, net income, operating income and related rates of performance are shown exclusive of the effect of tax benefits not obtained for losses incurred, results from divested businesses, discontinued operations, amortization of the FRBNY prepaid commitment fee asset, the recognition of other-than-temporary impairments, restructuring-related activities, conversion of the Series C, E and F Preferred Stock, realized capital gains (losses), net of SunAmerica DAC offset, partnership income, other enhancements to income, the effect of non-qualifying derivative hedging activities, the effect of goodwill impairments, credit valuation adjustments, unrealized market valuation gains (losses), the effect of catastrophe-related losses and prior year loss development, asbestos losses, foreign exchange rates, deferred income tax valuation allowance charges or credits, and the bargain purchase gain on the Fuji acquisition.
In all such instances, AIG believes that excluding these items permits investors to better assess the performance of AIG's underlying businesses. AIG believes that providing information in a non-GAAP manner is more useful to investors and analysts and more meaningful than the GAAP presentation.
Although the investment of premiums to generate investment income (or loss) and realized capital gains or losses is an integral part of both life and general insurance operations, the determination to realize capital gains or losses is independent of the insurance underwriting process. Moreover, under applicable GAAP accounting requirements, losses can be recorded as the result of other-than-temporary declines in value without actual realization. In sum, investment income and realized capital gains or losses for any particular period are not indicative of underlying business performance for such period.
AIG believes it should present and discuss its financial information in a manner most meaningful to its financial statement users. Underwriting profit (loss) is utilized to report results for Chartis operations. Operating income (loss), which is before net realized capital gains (losses) and related DAC and sales inducement asset (SIA) amortization and goodwill impairment charges, is utilized to report results for SunAmerica Financial Group (SunAmerica) operations. Results from discontinued operations and net gains (losses) on sales of divested businesses are excluded from these measures. AIG believes that these measures allow for a better assessment and enhanced understanding of the operating performance of each business by highlighting the results from ongoing operations and the underlying profitability of its businesses. When such measures are disclosed, reconciliations to GAAP pre-tax income are provided.
Life and retirement services production (premiums, deposits and other considerations and life insurance CPPE sales) is a non-GAAP measure which includes life insurance premiums, deposits on annuity contracts and mutual funds. AIG uses this measure because it is a standard measure of performance used in the insurance industry and thus allows for more meaningful comparisons with AIG's insurance competitors.
In light of the company's significant divestiture and restructuring-related activities, AIG revised its definition of after-tax operating income (loss) (formerly adjusted net income) in the fourth quarter of 2010. AIG revised the definition in order to present and discuss its financial information in a manner most meaningful to financial statement users. AIG's definition of after-tax operating income (loss) was revised to exclude income (loss) from divested businesses that did not qualify for discontinued operations accounting treatment, amortization of the FRBNY prepaid commitment fee asset, goodwill impairment charges arising from divestiture-related activities, the DAC offset associated with net realized capital gains (losses) for SunAmerica, and deferred income tax valuation allowance charges and releases.
AIG believes that this revised measure of after-tax operating income (loss) permits a better assessment and enhanced understanding of the operating performance of its businesses by highlighting the results from ongoing operations and the underlying profitability of its businesses, without the distortive effects of the highly unusual events that have affected AIG since 2008. In addition, the DAC offset adjustment is a common adjustment for non-GAAP operating financial measures in the life insurance industry, and is a better measure of how AIG assesses the operating performance of SunAmerica's operations.
SOURCE: American International Group, Inc.
American International Group, Inc.